Perhaps one of the most worrisome statements made by Russian President Vladimir Putin was a rare admission of defeat. Following the collapse of the Soviet Union, Putin, once a former agent of the then-security service KGB, had to resort to earning money as a private taxi driver. This more than anything demonstrates the extreme lengths that Putin will endure to survive, forcing a greater spotlight on defense stocks.
Frankly, Americans on balance are ill-prepared mentally for what lies ahead if Russia invades Ukraine, potentially drawing us into armed conflict with our longtime adversary. As well, the Ukrainians have demonstrated unspeakable resilience amid the Holodomor genocide.
It’s a blessing that we Americans of modernity enjoy to never have suffered such hell. So, why bother with Ukraine and the defense stocks that undergird this brewing crisis?
One word: China. If the U.S. continues to have its credibility challenged on the international stage, China will start getting ideas about Taiwan. Therefore, defense stocks may be quite important in the weeks ahead.
While conservative pundits note that we shouldn’t engage in a hot conflict with Russia, the point we must remember is that we have no good options, only the least bad option. Putin is no respecter of dialogue, only of strength. By showing that we are crazy enough to fight the Russians directly if necessary, China (and others) will think twice; hence, the burgeoning relevance of defense stocks.
As awful as this sounds, the U.S. can “afford” to meet the Russians force for force (barring nuclear warfare, of course). The same cannot be said about China, because the Chinese are integrated too deeply into our economic infrastructure — something that then Senator John F. Kennedy warned about. Cynically, defense stocks are one of the more logical places to consider putting your money.
If you’re investing in defense stocks, here are seven worth considering:
Lockheed Martin (NYSE:LMT)
Raytheon Technologies (NYSE:RTX)
L3Harris Technologies (NYSE:LHX)
Booz Allen Hamilton (NYSE:BAH)
Northrop Grumman (NYSE:NOC)
Huntington Ingalls Industries (NYSE:HII)
To be clear, no one should angle for war. However, sovereign territory and the rule of law must be respected. Thus, defense stocks in general have been solid investments because they keep honest people honest. Lose this credibility, though, and bad things happen quickly. And honestly, if we just allow countries to do whatever they want, then the American taxpayer deserves a refund for the trillions going into defense, only to receive poor outcomes.
Defense Stocks to Buy: Lockheed Martin (LMT)
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When I say that investors should consider defense stocks, I’m obviously not breaking any new ground here. On a year-to-date basis, the S&P 500 index is down over 9%. In the same time period, shares of Lockheed Martin, a renowned aerospace specialist, are up over 9%.
I’m not entirely sure if this is something to be proud about. For the last few years, LMT stock has been incredibly choppy, lacking a consistent trajectory. Therefore, upside like what we’re witnessing is an encouraging development for stakeholders. At the same time, the reason it’s moving higher is incredibly unpleasant. Still, the U.S. security infrastructure has no choice but to rise to the threats against global democracy.
Understandably, polls show that the majority of Americans have no appetite for war with Russia. However, we cannot afford a war with China, nor can we allow China to take over Taiwan. The nation is a huge exporter of critical technological goods and components, a factor that the coronavirus pandemic only accelerated.
Therefore, meeting Russia with each step it makes is crucial for global security and cynically positive for defense stocks.
Raytheon Technologies (RTX)
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Among the defense stocks to consider amid rising tensions in Ukraine, Raytheon Technologies may be the most pressured. Interestingly, RTX stock isn’t performing anywhere near what Lockheed Martin is printing, up only a bit above 2%. That’s the case even though Raytheon has partnered with Lockheed on the Javelin Weapon System, the missile of the hour.
Marketed as an “anti-tank guided munition that can be carried and launched by a single person,” the Javelin offers serious implications for how the Ukrainians can defend themselves against a much larger enemy. Should the Russians invade, they’ll of course use their tanks to roll into town. But meeting them will be a potential firestorm of good ol’ American technology.
So, RTX should be an easy buy among defense stocks, right? In multiple ways, yes. However, if the Javelin somehow proves ineffective, then it could be a cause for concern regarding confidence in the weapons system. And this ineffectiveness doesn’t have to be Raytheon’s (and Lockheed’s) fault. If the Javelin doesn’t prove to be a gamechanger, it’s going to be difficult to sell the system to other nations.
Still, I have confidence in U.S. defense stocks: Destruction is one thing we excel at.
Defense Stocks to Buy: Boeing (BA)
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As one of the defense stocks known more for its civilian business than its underlying military applications, Boeing represents one of the sector’s poorly performing blue chips. On a YTD basis, BA stock has shed 8%. Over the trailing year, the equity unit is down 5%.
At the same time, if you’re focused on the conflict in Ukraine, Boeing could be a discounted opportunity. According to a New York Times report, the company is now playing a significant role in responding to Russian aggression via its RC-135 reconnaissance plane:
“The United States has been regularly flying Air Force RC-135 Rivet Joint electronic-eavesdropping planes over Ukraine since late December. The planes allow American intelligence operatives to listen to Russian ground commanders’ communications. The Air Force is also flying E-8 JSTARS ground-surveillance planes to track the Russian troop buildup and the movements of the forces.”
While the monitoring of forces to provide real-world analytics is the primary goal, these flyovers serve a secondary purpose: Let the Russian military forces know that the eyes of the world are on them. It may not be the ultimate deterrent, but anything to help the situation from devolving into bloodshed is a positive.
L3Harris Technologies (LHX)
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When dealing with defense stocks amid tensions that could spill over into armed conflict, the natural instinct is to consider weapons systems and defensive platforms. Certainly, L3Harris Technologies features a broad range of air, land and sea-based solutions — even solutions that extend into space and the digital realm.
However, communications is also a key component of warfare. Without the ability to coordinate offensive or defensive actions, a nation’s military force will not be utilizing its resources in the most effective and efficient manner possible. Considering that Ukraine will be grossly outnumbered in a hot conflict with Russia, efficiency is absolutely critical.
Of course, the Russians are not unaware of this serious potential vulnerability. Inevitably, one of their actions in case of an invasion will be to cut off supply routes and disrupt communication lines. Therefore, the Ukrainian government’s relatively recent cooperation agreement with Harris Global Communications, a subsidiary of L3Harris, is significant.
Irrespective of whether or not an armed conflict occurs in the coming days, the relationship between L3Harris and Ukrainian forces should grow closer. This is not the first time Russia has made rumblings in the region. It will almost certainly not be the last.
Defense Stocks to Buy: Booz Allen Hamilton (BAH)
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Should Russia decide to invade Ukraine, the potential fallout in terms of a NATO response would be unprecedented in the European region in the post-World War II era. To be clear, Ukraine is not a member state of NATO. However, there are those who believe a war of this magnitude could not be contained to one country.
Those are frightening words. But what makes it more problematic in the modern era is that no country is technically safe. Yes, we now have the threat of hypersonic missiles for which defenses are few if any. But just as worrisome on both an economic and infrastructure level is the rise of cyberwarfare. From certain angles, cyberwar is more damaging than a physically tangible weapon like missiles.
Don’t get me wrong: People would rather be hacked than be killed. But from a realistic perspective, no one’s going to launch a hypersonic missile at the U.S., because there would be hell to pay for that. However, cyberattacks are a different story because they’re asymmetric. Anyone, anywhere can launch a devastating attack.
That’s where Booz Allen Hamilton comes into the picture. If the situation in Ukraine gets out of hand, Russia may launch cyberattacks against the U.S. We’ve got to be prepared, making BAH one of the defense stocks to consider.
Northrop Grumman (NOC)
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While cooler heads prevailing is the best circumstance that we can hope for, it may not be particularly realistic. The U.S. government has already shipped weapons systems to Ukraine and authorized its European partners to send their own shipments. Now, Ukrainian forces have even more resources with which to defend themselves.
It appears a silly miscalculation by Putin, which is worrisome, because he doesn’t make miscalculations. But as things stand today, the situation is worse for him. He wanted concessions out of the west; namely, that NATO will not attempt to make inroads into Ukraine. However, what he’s getting is exactly the opposite — more inroads, more support from the west. And right in his backyard too.
Given this dynamic, tensions may rise higher. That’s where Northrop Grumman could come into play with its MQ-4C Triton drone. Specializing in real-time intelligence, surveillance and reconnaissance, the Triton can provide valuable information while keeping servicemembers away from harm.
To be sure, this is speculation on my part, as I’m not aware of MQ-4C flights occurring over Ukraine. In my view, though, it’s a possibility. Still, NOC is one of the riskier plays among defense stocks due to disappointing sales stemming from supply chain issues.
Defense Stocks to Buy: Huntington Ingalls Industries (HII)
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As the largest military shipbuilding firm in the U.S., Huntington Ingalls Industries doesn’t exactly have the greatest relevance in terms of the Ukraine conflict. However, that doesn’t mean it’s completely irrelevant. For instance, Ukraine is surrounded by valuable shipping lanes that the Russians could attempt to choke off. Therefore, a potential battle may not just be about tanks rolling in.
Still, the majority of any potential warfare would likely be terrestrial, leaving HII out of the news cycle. Nevertheless, the conflict may provide a cynical opportunity to occasionally showcase American naval might. But on a longer-term framework, since our involvement in Eastern Europe likely stems from a desire to keep China in check, Huntington Ingalls remains a significant component of the broader defense narrative.
While it sounds terrible on paper, I genuinely believe that Washington partially views the Ukraine conflict as a means to signal to China. That might be the explanation why President Joe Biden, who initially appeared reluctant to mention any kind of direct U.S. military involvement recently signaled the possibility of troop deployments to the region.
Again, let’s hope cooler heads prevail. However, the Biden administration must know it cannot show any weakness, thus auguring well for HII.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
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